New Delhi [India], May 22 (ANI): A huge surge in retail investor participation has been witnessed in Indian capital markets over the past several years, and much of it could be attributed to the growing middle class coupled with rising financial literacy.

Mutual funds and systematic investment plans (SIPs) have become increasingly popular investment vehicles among Indians, particularly for the retail investors, a joint report by industry body ASSOCHAM and rating agency ICRA said.

Indian capital market stands at a cusp of a transformative era, driven by digital advancements, regulatory reforms, and its huge investor base.

Retail investors currently hold about 18 per cent of the total market capitalisation of NSE-listed companies, up from around 11 a decade ago.

Regulatory reforms spearheaded by the market regulator SEBI also have played a pivotal role in fortifying market integrity and transparency. Initiatives such as the introduction of the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code have bolstered the financial ecosystem, fostering a more robust and resilient market environment.

However, despite the substantial increase in retail participation in domestic equities, India's equity market penetration remains low at approximately 8 per cent, compared to 15-20 per cent in China, 45-50 per cent in the US, and 55-60 per cent in Japan.

A relative low capital market penetration in India indicates a significant growth potential, the ASSOCHAM-ICRA joint report said.

The number of domestic investors in mutual funds is about 50 per cent of those directly investing in equities, further highlighting the potential for expansion.

'The availability of diverse investment products, such as mutual funds, exchange traded funds (ETFs), portfolio management services (PMS), REITs, InVITs, AIFs, plain vanilla debentures, market linked debentures, etc, allows investors to build diversified portfolios that align with their risk tolerance and investment goals,' the report read.

As India's financial markets deepen, financial institutions, including banks, asset management companies, and brokerage firms, stand to benefit from the growth and diversification of the capital market.

All said, the market is, however, not without its challenges.

As the Indian capital market is deeply interconnected with the global economy, certain sectors in the Indian economy are particularly more vulnerable to global and domestic shocks.

For instance, the joint report asserted that the IT sector, which relies heavily on exports to the US and Europe, can be significantly impacted by global economic slowdowns. (ANI)